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Line In The Sand

Line In The Sand

by The MoleMay 20, 2010

For the bulls we are quickly approaching a line in the sand that must not be breached. If we breach the May 6 lows things will get out of hand quickly. We have pushed down quite hard and an updated wave count is needed – we have a line in the sand, and for the first time in a long time it’s one for the bulls πŸ™‚

Soylent Green is still a possibility but it dropped from 50% last night to about 20% as of right now. The line in the sand that can’t be breached is 1065.89 – a drop through that would immediately relegate Soylent Green to the dustbin of history. But do not think there is no chance and that a further drop is guaranteed – I have seen very deep c waves and in my time. We are already seeing a bullish divergence on the Zero Lite – and remember, tomorrow is OPX day πŸ˜‰

After my Soylent Green warning last night I actually kept on plugging and figured out a few more things. One of which was that the proper currency pair to watch is not the EUR/USD but this:

This is the 30min version but I usually look at the 5min version intra-day. In any case, it seems that the EUR/JPY is really where the action is as it matches the ES futures’ gyrations almost to a wiggle. And if you look for today’s drop you won’t find it in the EUR/USD – but you see it most definitely in the EUR/JPY.

12:46pm EDT: I have to make a very important point. Here I was pimping the EUR/USD correlation all week and after some additional digging it turns out that the ES futures follow the EUR/JPY a lot closer. And that has a big impact on the entire picture as it takes the Dollar out of the equation – well, theoretically, I don’t want to jump onto a new conclusion right away. But consider this – all it would take is a continuous drop in the JPY for ES (and equities) to potentially drop further, even if the Dollar corrects downward. I have to dig around to see how shot to hell the EUR/JPY is but it comes to show the one thing I keep preaching to everyoe: Don’t trade correlations – they at best serve as a bias.

So, in conclusion: I am glad that I proposed Soylent Green last night as it’s a perfectly valid scenario (the odds of which admittedly dropped this morning) but I need to reconsider if the DXY is the right instrument to follow when it comes to a correlation to equities and the index futures. Of course I keep on diggin on that end, and will follow up with an appropriate update. Sorry if I can’t offer more right now – the best I have right now is the chart above – keep watching the EUR/JPY for possible clues. And the Zero of course πŸ˜‰

Closing Bell – EOD Wrap Up: I just came back from a meeting 20 minutes ago and was surprised to not see more of a push back. Especially in the context of today’s EUR/JPY gyrations:

After the close we were pretty shot to hell on the EUR/JPY – at least short term. As expected there was a retracement and when I saw a bullish divergence on the Zero Lite I thought it would follow suit. But to my surprise (and general amusement) the bulls were unable (or maybe unwilling) to buy the dip and run after the EUR/JPY nor the EUR/USD, both of which pushed upward.

That’s how things looked like on the Zero and Zero Lite. You can see the divergence I mentioned and an attempt to ramp things above VWAP is being made – but ultimately fails.

Situation is looking pretty bearish here – we are but five handles away from Soylent Green biting the dust forever – as of right I give that scenario maybe 5%. I would completely throw it out weren’t it for OPX Friday tomorrow – trust me, I literally have seen horses puke on OPX Fridays. But today’s signal looks real – you can’t fake that type of bearish momentum. If the signal was flat I would give Soylent Green 10%-15% – but as it is right now the bulls are short of getting manhandled Sing Sing style.



About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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